The fast fashion industry has been a significant economic success story of the last two decades, nearly doubling in size, employing 70m people worldwide and contributing 2% to global GDP. This has been driven by huge advances in supply chain management, shrinking lead times from six months to two weeks and enabling retailers to stock more choice, reduce prices and respond rapidly to consumer demand.
It is also one of the more challenged industries in a more sustainable world, as experienced by UK retailer Boohoo, a much revered success story whose share price fell nearly 50% this month on the back of an investigation into working conditions at suppliers. The Times newspaper investigation unveiled illegal practices at a Boohoo supplier in Leicester, including paid wages as low as GBP 3.50 an hour (less than half the minimum wage for an adult over 25 years), the flouting of COVID-19 lockdown rules, and few health and safety provisions despite the continued stay-at-home rules in action in the city due to continued elevated transmission of the coronavirus.
Boohoo had become the king of cheap fashion in Britain in recent years by focusing on a business tailored to social media. Boohoo sells its clothes online, direct to customers, with new designs every week at affordable prices. To react quickly to new styles and customer demand, the company manufactures 40-60% of their product in the UK. In theory this should allow greater supply chain management vs. the many other retailers whose products are manufactured all over the world, however a significant proportion of this production is currently in the hands of uncontrolled subcontractors; companies that are not in direct contact with Boohoo and therefore escape audits of its supply chain.
The allegations are a big problem for a company that makes much of their clothing in Leicester. Since the story hit the front pages of most UK newspapers, the reputational damage has been significant. The National Crime Agency will investigate Leicester’s textile industry and it has drawn critical government attention. Boohoo’s management have since announced an investigation and have asked the Home Secretary to set up a licensing system for textile factories located in the UK, where the group wants to maintain production. During arguably the toughest market for retailers in recent history, the management are focused on damage limitation and needing to rebuild their reputation among customers, investors, and the government. The question of whether the economics of a GBP 12 dress works if all staff are paid minimum wage in acceptable working standards remains to be seen.
This is an issue not just for Boohoo but for most of the retailers in the fashion industry. After years of outsourcing manufacturing to the lowest bidder, there has been a growing concern about the sustainability of the industry. Retailers seemingly feign ignorance about the labour standards at sub-contractors which can make up a large proportion of their production and rarely question the economics. Just this week a coalition of more than 180 human rights groups published a call to action stating that they are “virtually certain” that as many as one in five cotton products sold across the world are tainted with forced labour and human rights violations of Uighur people in the Xinjiang region. They list brands including Adidas and Calvin Klein. For the UK at least this is in breach of several laws.
In the early days of the pandemic, the media focused on the vulnerability of garment workers in countries such as Bangladesh, Cambodia, India and Myanmar after fast-moving fashion brands abruptly cancelled orders, with some refusing to pay for orders already delivered, and social distancing measures forced the closure of factories, sending workers home with little or no pay. The sustainability commitments of many brands are being questioned as a result.
With the recent number of scandals in this industry, one can hope that corporations worldwide will be paying more attention to these issues and continue to raise ESG standards. Consumer pressure as well as regulations could be a catalyst for improvement of the whole industry. Boohoo may serve as a warning shot, as social media influencers speak out against the company they had previously helped succeed. Additionally investors should be flagging this industry and all of the connected risks. Especially those emphasising sustainability credentials.
There are some positive signs. Like many industries, there is an expectation that changes in the retail industry will be accelerated by the COVID-19 crisis. According to a recent McKinsey study on fashion retailers predominantly in the US and Europe, this includes core sustainability trends. The survey responses tell us that “more than 70% see closer partnerships with suppliers increasing and more than 60 percent believe that sustainable materials will become mainstream.” We hope to see this become reality, and greater responsibility be taken across supply chains in the industry.
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